Pakistan, Putin Help Push Gold Higher

01/17/2008 12:00 am EST

Focus: COMMODITIES

Mary Anne & Pamela Aden

Co-Editors, The Aden Forecast

Pamela and Mary Anne Aden, editors of the Aden Forecast, say international tensions may keep the price of gold and other natural resources higher.

Gold surged above $900 [recently] to a new record high. This is exciting, but gold could become even more exciting now that it’s in uncharted territory: by breaking above its 1980 high at $850, gold is entering a stronger bull market phase.

The main factor driving gold higher has been the record high oil price, along with the huge rises in food and other commodities. The turmoil in the credit markets has also been bullish for gold. Gold has also risen due to its safe haven status in reaction to growing international uncertainty and tensions, especially in the Middle East.

As the year drew to a close, Pakistan was in chaos. This followed the terrible assassination of Benazir Bhutto, the former prime minister. At the same time, Turkey invaded Iraq with the approval of the US, Russia provided Iran with nuclear fuel shipments, and the latest incident in the Strait of Hormuz renewed tensions between Iran and the US.

Pakistan has about half the population of the US, and it’s strategically a key country and ally in the struggle against terrorism. Al Qaeda and the Taliban have regrouped in Pakistan, they’ve grown stronger and several months ago Osama bin Laden called on Pakistanis to rebel against the government. Not to be pessimistic, but it seems pretty clear that bombings, tension, and uncertainty will probably continue in this nuclear-armed country as we move into 2008. Together with the ongoing war in Iraq and tensions [with] Iran, this will keep upward pressure on oil [and] gold.

Russia is another wild card we’ll be watching closely as tensions mount here, too. [President Vladimir] Putin was named Time’s Man of the Year and his power has grown immensely. Russia is booming, Putin is very popular and he basically appointed himself Prime Minister [to his hand-picked successor, Dmitri Medvedev].

He’s also become extremely critical of the US, and relations between the two countries are the frostiest since the Cold War. This year, for instance, Putin called for a new financial order, which would diminish US dominance, he feels the US is resurrecting a new arms race and he’s even compared the US to Nazi Germany. Putin refuses to accept missiles in Eastern Europe, threatens to point Russian missiles at Europe if the US follows through, and he’s sending nuclear materials to Iran.

It remains to be seen how this will all work out. But it seems Putin will be around for years to come and we wouldn’t be surprised if he keeps tensions brewing on the world stage, in one way or another, which again will be good for gold.

Plus, there’s no sign China’s demand is going to slow down, especially with the Olympics coming up this summer. Oil and natural resources will keep rising as China and other emerging nations keep buying to feed their voracious appetites and to expand their infrastructure.

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